Interview with Physicians Practice on M.D. Bankruptcy Trends

Physicians Practice, a leading medical practice management journal, contacted me for observations about trends in physician bankruptcies and financial distress. My comments will be published in an upcoming issue, but I have a preview for faithful readers on my thoughts:

1. There’s little doubt that physicians are going to be adversely affected by the economy-wide decline in healthcare consumption. The notion that demand for healthcare services was inelastic because care is a necessity was a fantasy. There’s been a rash of news reports of patients foregoing healthcare, everything from patients skipping appointments and diagnostic tests and cutting prescription dosages to stretch drugs out to parents who delay their daughter’s sweet 16 nose job and take care of her post-operatively at home, rather than foot the bill for an overnight stay. Anecdotally, many clients are confirming that patients who can put off care are doing so, and that even affluent patients are slower to pay and harder than ever to collect from.

2. This recent downturn, which was already brewing in 2008 prior to the crash, is a very recent trend, but the long-term downward trend in physician reimbursements and revenues has been one of growing disparity between the “haves” and “have nots” among physician practices, including divides:

• between low tech primary care physicians, who bear the brunt of a payment structure that fails to reward the diagnosing of patients with multiple problems through longer physical exams and detailed histories, and subspecialists, who, in general, fare better in a procedure-oriented structure;
• between subspecialties that perform more remunerative procedure-oriented care involving capital-intensive technology (orthopedics, cardiology, urology) and those that don’t (pediatric subspecialties, pulmonology, endocrinology);
• between physicians, particularly in elective medicine and concierge-type practices, whose patients are cash and PPO patients pay more for their services and physicians who are forced to accept the flat (and therefore declining in real terms) and often actually declining reimbursements from Medicare, Medicaid, and HMO’s;
• between physicians in saturated markets (particularly large urban centers) and physicians in small and medium sized markets, who often earn more for the same work based on supply/demand, but and save significantly on overhead expenses (e.g. office space, support staff) and regional variances (e.g. lower rates of malpractice litigation).

The “have not” ranks are growing and the “have” ranks are shrinking for variety of reasons.

3.  Ultimately, the payment structure of medical practice drives physician supply towards more remunerative areas, while Medicare fee schedules and private payors steadily erode  the more remunerative sectors.  Over time, more and more physicians are experiencing the downgrading of medicine into a middle-class profession, albeit one that requires more training than any other in our society.  Physician services are being/have been commoditized.   (Physicians who are cash-only are bucking this trend by successfully differentiating themselves so that they can opt out of the third party payment system that drives these trends.) Younger physicians are opting in ever greater numbers for larger organization practice, such as in systems like Kaiser or in hospital-based medicine, where being part of a large organization looks better than ever.  Physicians remaining in small or solo private practice turn to alternative revenue sources (e.g. ancillary services, such as imaging and physical therapy), but the payors and regulators ratchet down on these over time as well.  It’s a losing battle.

4.  Many physicians already in practice ignore these trends until they can’t any more.  There is a generation of physicians in solo and small, private practice that have watched their incomes erode dramatically under capitation and managed care.  The physicians most at risk in the current downturn include this significant population of physicians who are already suffering, treating patient populations that are heavily HMO and Medicaid, and don’t need much more to push them over the edge.

More to follow…

The Baucus Healthcare Proposal

Both the New York Times and the Wall Street Journal report today on Senator Max Baucus’
healthcare reform proposal. By releasing his plan at this point, Baucus, the chair of the Senate Finance Committee, is both signaling a commitment to major healthcare reform and stealing a bit of President-elect Obama’s thunder.

The Baucus plan is similar to Obama’s except for its adoption of the Massachusetts model of requiring everyone to purchase health insurance. (This was Hillary Clinton’s campaign proposal.) Like Obama, Baucus proposes the “Health Insurance Exchange,” a national marketplace in which individuals and small businesses can buy coverage with income-based subsidization. Most employers would be required to offer insurance to their workers or pay into a fund based on their size and revenues. Other interesting aspects of the Baucus Plan:

• allowing “pre-Medicare” seniors (55-64) to buy Medicare coverage if they do not have access to a public insurance program or a group health plan;
• expanding Medicaid availability to all Americans below the poverty level;
• expanding State Children’s Health Insurance Program (SCHIP) to cover all uninsured youngsters in families with incomes at or below 250% of the poverty level;
• Lifting the Medicare and SCHIP ban on legal immigrants in their first five years in the United States;

As undeniably broken as the existing system is, providers may want to think twice before getting behind the Baucus Plan or any future Obama Plan. Perhaps the most telling warning sign is the position of the big health plans, which are licking their chops at the mandate that every American purchase health insurance. Although Senator Baucus would place limits on their ability to charge high premiums or exclude preexisting conditions, his proposal would lead to an even larger slice of every dollar spent on healthcare going to payors rather than providers.  In addition, it doesn’t take much of a stretch of the imagination to see new restrictions imposed on providers in the future to ensure that they treat the wave of new low-reimbursement patients that will flow from reform.

Healthcare Reform Myths

Professors Katherine Baicker and Amitabh Chandra write in the most recent edition of Health Affairs about the myths that hinder healthcare reform. They argue that correcting these misimpressions will allow us to address the fundamental challenges facing the American healthcare economy. So what are the myths?
(1) that the problem is the inability of the uninsured ill to find affordable health insurance;
(2) that the cost of insurance coverage for the uninsured will be offset by the savings from the reduction in expensive and inefficient emergency room care;
(3) that the lack of insurance is the principal barrier to high-quality care;
(5) that employers can shoulder more of the insurance cost burden;and
(5) that high-deductible plans and competition, rather than government action, are the key to lower costs.

Baicker and Chandra present some fundamental challenges to the current healthcare reform discourse. They point out that insurance by definition is far from a panacea, and is in some respects a problem in itself. With regard to the emergency room, for example, the evidence is that any savings from fewer expensive emergency visits are offset by the greater consumption of health care services that takes place once patients have insurance:

in general, prevention is good for your health, not your wallet. Some preventive care has been shown to be cost-saving–such as flu vaccines for toddlers or targeted investments such as initial colonoscopy screening for men ages 60-64–but most preventive care results in greater spending along with better health outcomes.

The authors challenge some other sacred cows of the healthcare debate. We often assume that the problem is limited to the uninsured, but an ignored issue is the difference in quality of care that the insured receive based on geography: patients in certain high-spending areas “see more specialists more frequently, have more diagnostic and imaging services, and get more intensive care at the end of life–none of which has been shown through clinical trials to improve health.”

Legislators whose solutions focus on the panacea of universal insurance should take note of the authors observation that

[i]nsuring the uninsured will give them access to the sort of health care that everyone else receives: a combination of valuable care, overuse of some costly interventions with little proven benefit, and underuse of some vitally important therapies–care that is sometimes coordinated but often fragmented. This is better than no care, but it highlights the problem of collapsing the entire debate about U.S. health care reform down to the issue of uninsurance: health insurance does not guarantee good health care.

With major healthcare reform looking like a reasonable possibility this year, Baicker and Chandra’s article should be required reading.